Q: My 30-year-old son just finished graduate school with no loans. He has a new job that pays $60,000 a year. The problem: Because he hasn't established credit, he can't get a credit card or a car loan, even though he has $10,000 in savings and more than enough income to cover his bills each month. If I cosign a car loan, will that help him? I'm at a loss as to how he can start building his credit.
A: Mom, I can hear your frustration. It is stupefying that someone with a great income and no debt can't obtain a credit card or a loan. I bet that one factor weighing against his loan application is that he has yet to establish a FICO credit score, so while his income is enough to qualify, lenders won't make a deal. I am never a big fan of cosigning a loan, because it means you are 100 percent liable for making good on the amount borrowed. And even though your son sounds like a very stable guy, I stick by my advice: Do not cosign a loan for him. This is not about your son being a flake or freeloader. What if he is laid off? Or is injured in an accident?
But you can still help. If your FICO credit score is at least 740, I would consider adding your son to your credit card as an authorized user. This allows him to piggyback on your score, and it will help him build a solid credit report that will eventually make it possible for him to qualify for a car loan on his own.
I have to tell you, your son's situation is one of the big reasons I've worked hard to bring out my new Approved Prepaid MasterCard debit card. I have become so frustrated hearing from people who can't get credit cards or who are struggling to navigate high fees. Debit cards are a great alternative to credit cards—and a great way to avoid the temptation to run up a high balance.
Prepaid debit cards get around the problem of maintaining a hefty checking account balance, but some charge fees that can add up to $15 or more a month, and currently no prepaid debit cards report to one of the three main credit bureaus that lenders rely on for FICO credit scores. That's not much of a solution.
This is why I am so proud of the new Approved card, and I honestly think it will be a game changer. For the first time in history, transactions made through a prepaid debit card will be shared with TransUnion, a major credit bureau. That information won't yet affect FICO scores, but the hope is that collecting data and insight on how people use debit cards could eventually impact credit reports.